Has Netflix Found The Internet Video Holy Grail?

Netflix Inc. (NASDAQ:NFLX) is in the middle of the oldest dilemma on the Interne: how to make money doing cool stuff.

It’s the old “why buy the cow when you can get the milk for free” argument for the 21st century. People are loath to pay for something that they are used to getting for free. They are also adverse to spending what they see as big money for something they got for next to nothing. Internet video is in the same situation.

Netflix offers customers the chance to watch an unlimited number of movies for a jaw-dropping price $7.99 a month. A subscription to Hulu’s new paid service, Hulu Plus, was originally $10 a month. Now, there are reports that its price will be cut to $5. Amazon.com Inc. (NASDAQ:AMZN) offers $2.99 rentals on 99 movies selected by the site’s editors. Even YouTube, the 1,000 pound gorilla of Internet video, has struggled to make a profit.

“I personally can’t think of anything stupider for the big broadcast networks to do than give their shows to Google for free,” he writes. ‘Why ? Because they are finally getting BILLIONS of dollars in retransmission fees from their distributors.”

The trouble is that Internet video is a business code that no one has been able to crack yet. It’s way too early to pick winners and losers. People who try it often get burned.

Back in the day, Ask Jeeves was considered the best thing since sliced bread. Now the pioneering search engine, which ditched Jeeves several years ago, is barely a blip in the search engine market. News Corp. (NYSE: NWS) Rupert Murdoch thought that MySpace would be the bedrock of his Internet strategy when he acquired the social networking site for $580 million, a deal that soon became a disaster. Before there was Facebook, there was Friendster, which never became the next Google Inc. (NASDAQ:GOOG) that some expected.